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How Federalism Could Avert the Fiscal Cliff

photo of Erin  Mershon
November 13, 2012

The Brookings Institution's Metropolitan Policy Program released a series of policy recommendations Tuesday that it says could solve nearly all of Washington's looming fiscal problems. But the solutions, they say, won't come from inside the Beltway.

Instead they propose reinvigorating federalism, in a series of efforts that would emphasize states and metropolitan areas as the drivers of meaningful policy change.

States and cities "are cracking the codes in some of the toughest challenges around the country, whether its [New York City Mayor] Mike Bloomberg's applied sciences districts, whether its the transit extensions we're seeing in Los Angeles and Dallas, or whether it's the vast manufacturing efforts that are under way in northeast Ohio and elsewhere," Director of the Metropolitan Policy Program Bruce Katz said. "This is what's happening on the bottom level. In the absence of any federal direction, over the past several years, what you're seeing is cities and metros really stepping up to the plate."

Brookings' plan isn't entirely revolutionary.

Like many Hill proposals, it calls for eliminating wasteful programs and simplifying federal rules. It emphasizes the elimination of "ineffective, redundant, wasteful" spending and tax subsidies -- the savings from which would then be reinvested in research and development, exports, infrastructure, housing and education.

But the specifics of what they want to put on the table -- including instituting a carbon tax and cutting tax subsidies for things like fossil fuels and entertainment -- are more controversial. They call for exempting Private Activity Bonds from the Alternative Minimum Tax, opening up oil and gas investment structures to the renewable energy field, and encouraging more public/private partnerships to tackle complex issues.

"We think this is a challenge of fundamentally overhauling the government. It is not sufficient to get the federal fiscal house in order. We really do need a house cleaning of monumental proportions," Katz said. "We're going to leverage up the energies and the talents and dynamisms of our states, cities and metropolitan areas and the business and civic leaders who govern them."

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